If you want to discharge IRS income tax debts in a Chapter 7 bankruptcy and your tax returns filed were not fraudulent in nature, there are one of three conditions that you need to meet. In order to discharge IRS income tax debts, the IRS requires a reasonable amount of time to collect the taxes. Federal tax laws and bankruptcy statutes define such time periods. The Tax Resolution Institute can guide you to make sure that your IRS tax debts are dischargeable in a Chapter 7 bankruptcy.

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How Long Before IRS Income Tax Debts Are Dischargeable?

How much of an opportunity does the IRS have to collect before you can discharge the tax debt? Each of the three conditions below measures this amount of time differently. Such measurements  for eliminating IRS income tax debts in a Chapter 7 bankruptcy are based on the following time periods: 1) when the tax return for the particular income tax was due, 2) when the tax return was actually filed, and 3) when the tax was actually assessed by the IRS. You must meet all three of these conditions as well as all three of these measures of time, to discharge IRS income tax debts in a Chapter 7 bankruptcy.

Let’s illuminate the three time period requirements one at a time:

1) The Three Year Rule.

You must wait three years after the time your tax return was due. Each IRS income tax debt stems from a Federal tax return that has a fixed point in time when it should have been filed.  Note that the date in question may be extended by certain events including filing an extension, but it’s still a fixed point in time that is measurable and must be considered when contemplating a bankruptcy. As a result, this fixed point gives the IRS a minimum of three years to collect. The Three Year rule only applies to tax returns that are filed on time.  For delinquent returns and other events that affect tax liability, see the rule below.

2) The Two Year Rule.

You must wait two years after the time a tax return was actually filed assuming it was filed at least one year after its due date. In contrast to the Three Year Rule, this time period is greatly affected by your actions directly. If you file a tax return late, you will only be able to discharge the IRS income debt if at least two years have passed since the date you filed the return.

3) The 240 Day Rule.  A tax is “Assessed” at the time the IRS formally determines the amount of your tax liability. In the majority of cases, the IRS assesses an income tax within a few weeks of receiving a tax return. In some cases such as an audit or an amended tax return, an assessment or reassessment may occur long after the three-year period or two-year time period run their course. Federal law is designed to account for these less common occurrences. If the three-year and two-year periods have passed, the IRS Revenue Officers still have 240 days after the date of assessment to collect IRS income tax debt that may then be dischargeable in bankruptcy.

If your tax debt meets these 3 time period conditions, you should be able to discharge that tax in a Chapter 7 bankruptcy. If you want to know more, please contact the tax experts and tax attorneys at the Tax Resolution Institute for help. Please contact us for a free consultation by calling (818) 704-1443 before it is too late.